From the Street:
In the tiny island of Manhattan, supply of homes has always been limited and homeownership has been the privilege of a lucky few.
But the supply-demand dynamic in the city is now so out of whack that even a million dollars in the bank and pristine credit doesn’t do you much good.
Buyers who are re-entering the housing market after waiting on the sidelines for so long are waking up to the cold reality that there are few homes left to buy.
“The market is absolutely insane,” says Jacky Teplitzky, managing director at Douglas Elliman Real Estate. “It has completely changed in the last five weeks. There is just no inventory.”
The absorption rate — the number of months it would take to sell the amount of listings in the market at the current sales pace — fell to 5.5 months at the end of the fourth quarter of 2012, compared to the 10-year average of 9.3 months. Listings have dropped even further since then in the early months of January and February.
Doug Perlson, CEO of online real estate company RealDirect.com says prices are on the rise with bidding wars among buyers starting to drive offers above the asking price. “It is amazing how in such a relatively short time, Manhattan has gone from a neutral [housing] market to a buyers’ market to a sellers’ market now because of a lack of inventory. It is frustrating for buyers who have been sitting out for so long only to find out that there is nothing left.”
Supply of homes has plunged nationally for a number of reasons. New home construction came to a standstill following the bust. Foreclosure activity has declined reducing the inventory of existing homes in the market. Some homeowners cannot sell their homes because they continue to owe more than their homes are worth. Others can’t sell because they can’t qualify for the loan they would need to “trade up” to a bigger home, owing to tight credit conditions.
In Manhattan, however, there are other factors at play. Unlike the rest of the country, there are relatively fewer underwater borrowers in the city and foreclosures are also low.
The real reason why there are not enough listings, he says, is because potential sellers are staying put in their homes due to lack of supply. “When sellers sell, they become buyers or renters,” says Miller. “If you are a homeowner and you want to trade up, but can’t find anything to buy, even though you still have plenty of equity in your home, what do you do? Nothing.” says Miller.
Perlson of RealDirect.com says the inability to trade up to larger homes has dramatically reduced the supply of middle-tier housing, effectively freezing the market.
Are there concerns of a brewing bubble? “We are still in a rational housing market,” says Kathy Braddock, co-founder of Rutenberg Realty. “Everything is not flying off the shelf. When you hit the sweet spot, you get multiple offers. But there is no stupid money.”
Miller does worry that prices might be rising a little too quickly in some areas, but believes that buyers this time are a little more cautious. “Back then [in the boom], buyers were panicked. This time they are more skeptical and less willing to become totally irrational. But if inventory continues to fall and the economy improves a little bit, that could change,” he warns.